Although you’d much rather avoid it altogether, as you know, having a solid credit score is a big part of adulting and will help you secure a loan for a car, your small business, or a mortgage in a major way. If you fear being an eternal slave to the overlords of credit but want to get your toes wet, here are some ways you can build credit with a debit card.
Get into the habit of smart spending
While most debit cards aren’t reported to the credit bureaus and don’t affect your credit score, debit cards can provide a sort of gateway to using your credit card responsibly. For instance, you can use features of your debit card to mimic those of credit cards. One thing you can try is setting a limit on how much you want to spend using your debit card each month.
And if it makes sense to do so, decide what kinds of purchases you want to use your debit card for. This works best if you have separate debit cards from two different banks. Maybe you only use your debit card to spend on beer, when eating out with friends, or to pay for a tank of gas.
When you’re ready for a credit card, you’ll have a system and set of rules in place as to how much of a balance you’ll want to carry on your card, what kinds of purchases you want to make with the card, and so forth.
Create a buffer fund
What if your variable expenses are a little on the high end one month, and you go over your allocated spending? Do you have an account buffer that includes one to two weeks of spending to tide you over? If not and you’re a Simple customer, set a Goal for such a fund. If you find yourself going over one month with the spending, you can tap into your account buffer. And if you’re new to budgeting, it also allows you to learn about your spending habits while giving yourself a safety net.
When you’re ready for a credit card, your buffer fund can be used to pay for your credit card bills if you’re having a rough month, or be used in lieu of a credit card. And it wouldn’t hurt to have that set up.
Consider a prepaid card
Prepaid cards are associated with major credit card companies and are just what they sound like: You load money onto a card for use. When you run out of funds, you can reload money onto your card. This will help you get into the habit of only spending X amount.
By having a prepaid card, you’ll be able to get a feel for what it’s like to have a card separate from your debit card. Plus, when you do get a credit card, you’ll have worked in a new flow for reloading money onto your prepaid card every month, which will carve out a separate bucket of funds to pay for your credit card bill.
Get a secured credit card
If you have bad credit, a secured credit card can help you build your credit. It works just like a normal credit card would, and you’ll also be responsible for paying off the minimum each month. The major difference is that, just like, say, renting an apartment, you’ll need to put in a security deposit. Your line of credit depends on how much money you make, the amount of your deposit, and your ability to pay. Your credit limit will most likely be the same amount as your deposit. So if you put in $500, your credit limit will also be $500. And if you make your payments on time, you’ll get your security deposit back or be eligible for unsecured cards.
You won’t need as long of a credit history or as good of a credit score to get approved for a secured credit card. Just be sure to do your research beforehand to make sure it’s a legit card and a good fit for where you’re at.
Make use of rewards from debit cards
Just like credit cards, some debit cards offer rewards and allow you to rack up points to trade in for e-gift cards or cash back, or to spend on travel. While it’s great to be able to score points for just spending money, you can also figure out what kinds of rewards are most useful to you. Most important, you can use it to test the waters and observe how you behave when there’s an incentive to use your debit card. Do you find yourself being tempted to swipe your debit card at more places, just so you can accrue points at a quicker pace? This is a good time to figure out any pitfalls before diving into the credit game full throttle.
Although you won’t be able to buy things with money you don’t already have, treating your debit card like a credit card can help you build credit. Because what it really boils down to is developing solid spending habits.
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